Tuesday, September 9, 2014

Platinum Fixing Under the Microscope

by Dimitri Speck

Is it honest or is there fraudulent manipulation?

First fines have been imposed for manipulation of the gold fixing, the silver fixing is even discontinued entirely. But is everything in order with the platinum fixing? Have there been manipulations – and are they part of a larger manipulation campaign?

The precious metals fixings have the purpose of enabling large volume trades. However, they also provide reference prices, which are used by merchants and have an effect on subsequent trades. They are therefore an especially suitable target for price manipulations. There have already been statistical hints as far back as 2002 that systematic manipulation of the gold fixing was taking place; in 2011 similar hints emerged in the silver fixing.

We now want to examine the platinum fixing. It takes place twice daily, at 09:45am (AM fixing) and at 2:00pm (PM fixing) London time, which is equivalent to 4:45am and 9:00am EST. It takes a not precisely predetermined amount of time lasting several minutes until the fixing price is established.

There are reliable methods to trace price manipulations taking place at specific times of the day. Calculation of an average intra-day price trend over many days often provides clear evidence. Similar to gold and silver, this method can also be employed to uncover systematic manipulation in the platinum market. We use one-minute prices of futures contracts from December 1997 to April 2014. From these we calculate the average of intra-day price movements.

Fig.1 is therefore no normal intra-day price chart. It rather shows how the platinum price has behaved in the course of the average trading day over approximately the past 16 years. It shows the typical movements – calculated from millions of prices. The horizontal axis shows the time of the day (EST), the vertical axis the average price level (indexed to 100). Since it is an average over a great many days – 4189 all in all – the size of the moves is relatively small.

Chart-1-Platinum intraday averageFig. 1: 16 year average intra-day platinum price – the PM fixing stands out …

On the chart, several points in time can be discerned when the average price behaves conspicuously. Especially noteworthy is the decline at the PM fixing. There is, however, also a mild decline at the AM fixing and when the main trading period begins at the COMEX at 8:20am. Interesting also is the slightly accelerated advance near the close of COMEX trading at 1:05pm.

This indicates an upward price manipulation. Trading house Moore Capital was fined for precisely such manipulations at the close of trading – a nice confirmation of the method’s validity. However, most conspicuous are the price moves at the PM fixing. We want to examine these more closely. For this purpose, we take a closer look at average intra-day prices around the time of the PM fixing.

Fig.2 shows a close-up of the previous chart, including the 30 minutes before and after the beginning of the fixing. We can see that prices begin to slowly decline from 8:50am onward. Once the fixing begins at 9:00am, the price decline accelerates between 9:01 and 9:05. Thereafter, average intra-day prices already begin to embark on a counter-movement. From this progression it can be surmised that the typical duration of the fixing over these years was approximately five minutes.

Chart-2-close-up of fixing
A close-up of the time period surrounding the afternoon fixing (EST).

For the further examination we will limit ourselves to studying the interval between 9:00am and 9:05am (the “fixing period”). Any manipulations that take place at other times – including those in the minutes preceding the fixing – are not pursued further at this juncture. We thus analyze the price movements of the five-minute interval between 9:00am, the beginning of the fixing, to 9:05am, the time when the downward move on the average intra-day price chart ends. During this time period, the strongest part of the decline occurs. The PM fixing takes place concurrently.

The study includes the price moves of altogether 4189 days – a time period of 16 years. On average, platinum prices fell by 0.0272% in the five minutes of the afternoon fixing. Given that platinum actually rose from $376 to $1,440 during those years, a slight increase would normally have been expected. During the 4189 fixing phases there have been 1730 price increases and 2195 price declines. 271 times prices remained unchanged. One would have at least expected as many price increases as declines. Statistically, there is therefore an excess of 236 price declines at a minimum. A coincidence?

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